General Studies Paper 3 (Indian Economy)
Question:- 76. What are the reasons behind the recent fall of Indian rupee? Examine the potential effects it has on Indian economy. Answer in 250 words.
Sep 27, 2022
Answer:-

 

INTRODUCTION:

Recently against the strengthening of Ud dollar Indian rupee has plummeted to an all time low against US dollar which can be attributed to the various factors:

 

BODY PARAGRAPH:

Causes of Fall if Indian Currency

Sell-off of the Equity:

A sell-off in the global equity markets which was triggered by
 Hike in interest rates by the U.S. Federal Reserve (central bank),
 War in Europe
 Growth concerns in China due to the Covid-19 surge.

Outflow of Dollar:
The outflow of dollars is a result of high crude prices and the correction in equity markets is also causing adverse flow of dollars.

POTENTIAL IMPACTS: 

1) The current account deficit is bound to widen, depleting foreign exchange reserves and weakening the rupee.
2) With higher landed prices of crude oil and other crucial imports, the economy is definitely inching towards cost-push inflation.
3) Cost-push inflation (also known as wage-push inflation) occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials.
4) Companies may not be allowed to fully pass on the burden of high costs to consumers, which, in turn, affects government dividend earnings, raising questions about budgeted fiscal deficits.